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Removal and Remand in an Oil and Gas Lease Case

By Paul R. Yagelski, Esquire

When an oil and gas lease case is removed to federal district court on the basis of diversity, how does the district court determine the amount in controversy?

In Kopko v. Range Resources-Appalachia, LLC, 2020 WL 3496277 (W.D. Pa. June 29, 2020), the Plaintiff, Michael J. Kopko, brought an action against Range Resources-Appalachia, LLC (“Range) in the Court of Common Pleas of Washington County, Pennsylvania, for rescission of his oil and gas lease with Range.  Range filed a Notice of Removal to the United States District Court for the Western District of Pennsylvania on the basis of diversity jurisdiction.  Kopko then filed a Motion for Remand arguing that the amount in controversy required for diversity jurisdiction had not been met.

In asserting diversity jurisdiction, Range averred that the parties maintained diverse citizenship, because it is a limited liability company organized in Delaware and Kopko is a resident of Pennsylvania.  As to the remaining diversity jurisdiction component, the amount in controversy was alleged to be in excess of $75,000.  Specifically, Range averred that pursuant to their lease, Range paid Kopko and his co-lessors $176,550 as an upfront bonus plus $155,386.45 in royalties.  Accordingly, Range asserted that the amount-in-controversy exceeded the $75,000 threshold.

In determining Kopko’s Motion for Remand, the District Court noted that a defendant can remove a case to federal court if the court has original jurisdiction over the civil action.  28 U.S.C. § 1441.  However, “removal statutes are to be strictly construed against removal and all doubts resolved in favor of remand.”  Boyer v. Snap-on Tools Corp., 913 F.2d 108, 111 (3d Cir. 1990) (quoting Steel Valley Auth. v. Union Switch & Signal Div., 809 F2d 1006, 1010 (3d Cir. 1987)).  Furthermore, “[t]he party asserting jurisdiction bears the burden of showing the action is properly before the federal court.”  Sikirica v. Nationwide Ins. Co., 416 F.3d 214, 219 (3d Cir. 2005).  It is the removing party’s burden to demonstrate that the amount in controversy exceeds the jurisdictional amount.  See Frederico v. Home Depot, 507 F.3d 188, 193 (3d Cir. 2007); Samuel-Bassett v. KIA Motors Am., Inc., 357 F.3d 392, 396 (3d Cir. 2004).  The amount in controversy must be shown by a preponderance of the evidence.  See 28 U.S.C. § 1446(c)(2).  Preponderance of the evidence means “proof to a reasonable probability that jurisdiction exists.”  Frederico, 507 F.3d at 196 n.7.  Determination of the amount in controversy “begins with the reading of the complaint filed in State Court” Id.  “The allegations on the face of the complaint control the amount in controversy unless it appears to a legal certainty the claim is really for less than the jurisdictional amount.”  Horton v. Liberty Mut. Ins. Co., 367 U.S. 348, 353 (1961).

In his motion for remand, Kopko argued that Range could not demonstrate that the value of its non-monetary claim for equitable rescission exceeded the amount in controversy.  Specifically, Kopko contended that if he succeeded on his rescission claim, Range would not be liable for damages, and in fact, if the rescission claim was successful, Range would actually receive funds in return.  In response, Range argued that the value of the litigation, i.e., the lease, is sufficient for the court to recognize an amount-in-controversy that exceeds the requisite $75,000.  Specifically, Range asserted that Kopko and his co-lessors received leasehold payments, including the upfront $176,550 bonus plus $155,386.45 in royalties.  Thus, Range contended that remand was not warranted, given the value of the lease.

The District Court in looking at Kopko’s Complaint noted that although Kopko’s complaint did not allege a value for his claim, the Supreme Court and Third Circuit have instructed that the amount in controversy should be measured by “a reasonable value of the rights being litigated.”  Angus v. Shiley, 989 F.2d 142, 146 (3d. Cir. 1993).  Additionally, the Supreme Court has held that “[i]n an action seeking declaratory injunctive relief, it is well established that the amount of controversy is measured by the value of the object of the litigation.”  Hunt v. Wash. State Apple Advert. Comm’n., 432 U.S. 333, 347 (1977).

The District Court also noted that in the context of oil and gas leases, courts have held that the value of the lease in toto determines the jurisdictional amount even when a plaintiff seeks only equitable relief.  In Escandel v. Cabot Oil & Gas Corp., 2008 WL 2357749 (M.D. Pa. June 5, 2008), plaintiffs sought to invalidate an oil and gas lease that they entered into with defendants.  Id. at *5.  Defendants removed, but plaintiffs asserted that the $2,225 they had received under the contract was the only amount in controversy for purposes of diversity jurisdiction.  Id.  The court disagreed, stating that the plaintiffs incorrectly “assert[ed] that the amount in controversy is limited to the monetary sum of the claim.”  Id.  Instead the court looked to the value of the lease, which it determined exceeded $75,000.  Id. at *7; see also Frystak v. Cabot Oil & Gas Corp., 2008 WL 2357744 (M.D. Pa. June 5, 2008); Rosen v. Chrysler Corp., 205 F.3d 918, 921 (6^th Cir. 2000) (“where a plaintiff seeks to rescind the contract, the contract’s entire value . . . is the amount in controversy.”); Neely v. Consol, Inc., 25 F. App’x 394, 400 (6th Cir. 2002) (holding that, despite the request for rescission only, the value of the lease determined the jurisdictional amount in controversy requirements).

Here, Range had provided uncontested evidence that the value of the lease exceeded $75,000.  In exchange for oil and gas rights, Range paid Kopko and his co-lessors an upfront bonus payment of $176,550 plus royalties totaling $155,386.45.  Kopko did not dispute those amounts.  The value of the lease is measured by more than the money damages Kopko claimed in his rescission action.  As such, Range had sufficiently demonstrated that the amount in controversy exceeded the $75,000 jurisdictional minimum threshold and the District Court denied Kopko’s Motion for Remand.

On the basis of the cited case law, in an oil and gas lease case that has been removed to federal district court on the basis of diversity jurisdiction, the district court is to look at the value of the lease in toto in determining whether the jurisdictional amount requirement for diversity jurisdiction has been met.

If you have an issue with an oil and gas lease, contact us online or call (412) 338-1124.